Case Comment: Akcil and Ors v Koza Ltd and Anor [2019] UKSC 40

Natalie Haefner is currently a second year trainee solicitor at CMS. She has a particular interest in dispute resolution. In this post, Natalie comments on the decision handed down in the matter of Akcil and Ors v Koza Ltd and Anor [2019] UKSC 40:

Whether art 24(2) of the Recast Regulation confers exclusive jurisdiction on the English courts to determine the authority in England on directors appointed in foreign proceedings to the board of a foreign corporate shareholder of a company registered in England to cause or permit the foreign corporate shareholder to do anything as a shareholder of the English company; and

Whether art 24(2) confers exclusive jurisdiction against anyone other than the foreign corporate shareholder, such as its directors of a corporate shareholder as co-defendants.

Background

The first respondent (“Koza Ltd”) is a private company incorporated in England and is a wholly owned subsidiary of the sixth appellant (“Koza Altin”), a publicly listed company incorporated in Turkey and part of the Koza Ipek Group (“the Group”). The Group were formerly controlled by the second respondent (“Mr Ipek”).

Mr Ipek alleged that he and the Group had been targeted unfairly by the Turkish Government, including by making them the subjects of a criminal investigation. In September 2015, Mr Ipek caused numerous changes to be made to Koza Ltd’s constitution and share structure to control his interests. The validity and effect of these changes is in issue.

On 26 October 2015, in Turkish proceedings in relation to the criminal investigation, a judge appointed certain individuals, including the first to fifth appellents, as trustees of Koza Altin. On 19 July 2016, the trustees served notices under section 303 of the Companies Act 2006 (“the 2006 Act”) in respect of Koza Ltd. This required the directors to call a general meeting to consider resolutions for their removal and replacement with three of the trustees. The directors refused, and so on 10 August 2016, a second notice was served under section 305 of the 2006 Act to convene a meeting on 17 August 2016.

Mr Ipek and Koza Ltd made an urgent without notice application seeking an injunction to prevent the meeting. This was sought on two bases: (i) the notices of 19 July and 10 August (“the notices”) were void under section 303(5)(a) of the 2006 Act (“the English company law claim”); and (ii) the notices were void because the English courts should not recognise the authority of the trustees since they were appointed on an interim basis and acted contrary to Turkish law, ECHR and natural justice (“the authority claim”).

On 16 August 2016, interim injunctive relief was granted. Mr Ipek and Koza Ltd then issued their claim form on 18 August 2016, in which they sought: (i) a declaration that the notices were ineffective; (ii) an injunction to restrain Koza Altin and the trustees from holding any meeting pursuant to the notices and from taking steps to remove the current board of Koza Ltd; (iii) a declaration that the English courts do not recognise any authority of the trustees to cause Koza Altin to call any general meetings or to do or permit the doing of anything else as a shareholder of Koza Ltd; and (iv) an injunction to restrain the trustees from holding themselves out as having authority to act for or bind Koza Altin as a shareholder of Koza Ltd and from causing Koza Altin to do anything or permit the doing of anything as a shareholder of Koza Ltd.

The appellants subsequently filed acknowledgement of service and stated they intended to contest the jurisdiction of the English court.

The Recast Regulation

The Recast Regulation governs jurisdiction assumed by member states. The basic scheme for allocation of jurisdiction under the Recast Regulation is that persons domiciled in an EU member state should generally be sued in that member state, but they may also be sued in another member state in certain situations. This includes cases of exclusive jurisdiction under art 24.

“Art 24:

The following courts of a member state shall have exclusive jurisdiction, regardless of the domicile of the parties:

…

in proceedings which have as their object the validity of the constitution, the nullity or the dissolution of companies or other legal persons or associations of natural or legal persons, or the validity of the decisions of their organs, the courts of the member state in which the company, legal person or association has its seat. In order to determine that seat, the court shall apply its rules of private international law.”

Art 24 reflects situations where there is an especially strong and fixed connection between the subject matter of a dispute and the courts of a particular member state. For cases falling within art 24, the principle of exclusive jurisdiction takes priority over the other principles underlying the Recast Regulation.

Earlier Decisions

At first instance, the judge held that the English court did have jurisdiction to hear the claim. It was also held that the English company law claim and the authority claim were inextricably linked.

The trustees appealed to the Court of Appeal, who refused the appeal. The Court of Appeal found that art 24(2) requires the court to form an “overall evaluative judgement” as to the principal subject matter of the proceedings. The Court of Appeal found that the principal subject matter in this case was the “challenge to the ability of Koza Altin to act as a shareholder of Koza Ltd in relation to Koza Ltd’s internal affairs.” It was held that even if certain aspects of the relief sought could be viewed in isolation, they ultimately related to decisions taken by the organs of Koza Ltd.

The appellants subsequently appealed to the Supreme Court. Their position was that: (i) the English courts have no jurisdiction under art 24(2) of the Recast Regulation over the trustees; (ii) the English courts do have jurisdiction under art 24(2) of the Recast Regulations over Koza Altin in respect of the English company law claim; and (iii) the English courts have no jurisdiction under art 24(2) of the Recast Regulation over Koza Altin in respect of the authority claim.

The Supreme Court’s judgment

The Supreme Court unanimously allowed the appeal. It was held that, given the scheme of the Recast Regulation, there should only be one correct application of art 24, and its interpretation cannot depend on evaluative judgement.

Following the guidance from previous case law, the Court of Appeal held that a mere link between two claims is not sufficient to bring both claims within the scope of art 24(2) and therefore the interpretation of art 24(2) adopted by the Court of Appeal cannot be sustained.

“It does not follow that one can say…where there are two distinct claims – one, taken by itself, falling within art 24(2) as regards the exclusive jurisdiction of the English courts and the other, by itself, not falling within art 24(2) as regards such jurisdiction – it is legitimate to maintain that by virtue of an overall evaluative judgment in relation to both claims taken together the second also falls within art 24(2) so that the English courts exclusive jurisdiction in relation to it.”

It was held that the English company law claim and the authority claim could be said to be connected in a sense, but they are ultimately distinct claims which are not inextricably bound up together. The English company law claim can be brought and made good on its own terms without regard to the authority claim, as can the authority claim. When assessing the authority claim as a distinct set of proceedings, it was held that the principal subject matter does not comprise the validity of the decisions of the organs of a company with its seat in England. In the absence of a strong and fixed connection, the English courts therefore lack art 24(2) jurisdiction over Koza Altin and the trustees as to that claim.

Since art 24(2) does not cover the authority claim, the English courts also consequently lack art 24(2) jurisdiction in relation to the trustees with respect to that claim. The proceedings against the trustees are primarily concerned with the authority claim and art 24(2) jurisdiction over the English company law claim cannot extend to the trustees, who are not necessary parties to the claim.

It was in the Supreme Court’s view that the application and interpretation of art 24(2) is clear and it is acte clair that its provision do not cover the authority claim. The appeal by Koza Altin and trustees was therefore allowed by the court.